“Reforms are starting to pay off”
WITH THE CONVERTIBLE MARK GAINING WIDE ACCEPTANCE AS THE NATIONAL CURRENCY AND BANKING REFORM CONTINUING APACE, BOSNIA AND HERZEGOVINA IS ON THE PATH TO FULL RECOVERY. THE KEY TO FURTHER GROWTH NOW LIES IN THE EXPANDING PRIVATE SECTOR

CHANGES ON THE HORIZON The Sarajevo skyline with the National Library in the foreground.

The three-year war between Bosnia and Serbia, which cost 250,000 lives, made 2.5 million homeless and left the whole of former Yugoslavia devastated, ended in 1995 with the signing of the Dayton Agreement. Today Bosnia is divided into two distinct entities: the Muslim-Croatian dominated Federation of Bosnia and Herzegovina which covers 51% of the territory and the Serbian-oriented Republic of Srpska which occupies the other 49%. Ethnic violence has been reduced but there is high unemployment and GDP per capita barely reaches $1,200 per annum. At present 75% of Bosnia’s borders come under the control of the State Border Service whose eventual aim is to unite the country.
Each entity has its own prime minister, responsible in turn to the Chairman of the Council of Ministers, Harvard-educated Zlatko Lagumdzija, who presides over the whole country. Dr. Lagumdzija acknowledges the United States’ role in achieving peace, and now aims at rebuilding the infrastructure, relaunching the ailing economy, and facilitating the reforms needed for a full recovery. He welcomes the recent USAID training projects that helped improve the private sector and financial systems and created a new efficient class of entrepreneurs and young bankers. “It is starting to pay off,” he says.

The country’s negative and politically confusing image, however, continues to hold back international investment in the private sector. As the former U.S. ambassador to Bosnia and Herzegovina Thomas Miller confirms, “to many Americans Bosnia is a war, not a country. We are trying really hard to reach out to various companies with varying degrees of success.” Mr. Miller, however, stresses that genuine progress has been made. “For the first few years we were emphasizing the rebuilding of infrastrucure. Now we are emphasizing sustainability and transition: building up indigenous institutions, structures and systems that can continue on their own.”
The overriding need is for a single economic space. Dr. Lagumdzija believes real progress is possible with positive coordination between the two current leaders. Alija Behmen, Prime Minister of the Federation of Bosnia and Herzegovina, has drawn up an economic and market-oriented document to clarify the global activities needed to fulfil the country’s strategic role. “First, we need a solid legislative framework which will support the entrepreneurial approach,” he says. “Then a stabilizing macroeconomic policy that will enable successful companies to grow.”

Privatization will in turn streamline the economy, adapt Bosnia to the world market and help develop key resources such as ore, steel, aluminum, thermal and hydro energy and tourism. Internal priorities are education, refugee rehabilitation, social and administrative reform and fighting corruption. Dr. Behmen feels the role of the U.S. is to encourage self-initiative. “I strongly believe the U.S. creates a balance here. It is much easier for them to look beyond the national framework.”

Under Prime Minister Mladen Ivanic, the Republic of Srpska (RS) is attempting the difficult transition to a market economy and has begun building a macroeconomic management and new government structure. Mr. Ivanic plays down alleged political differences with Mr. Lagumdzija and Dr. Behmen. “Things are improving and we have more in common than a couple of months ago,” he says. “The common goal is one economic space.” A further improvement is that RS is at last attempting to cooperate with the International Criminal Tribunal for the Former Yugoslavia (ICTY) in The Hague, an omission which in the past seriously deterred U.S. investment.

Mr. Ivanic feels the U.S. could eventually help BiH to obtain EU membership, and has attempted to discipline finances by imposing 35% more excises and setting up anti-fraud teams. “All in all there are two goals,” says Mr. Ivanic, “to encourage investment and decrease taxes on salaries.” Higher wages and pensions are planned, and investments are tax free in order to attract foreign revenue. “The situation has changed since the war and real opportunities exist,” says Mr. Ivanic, pointing out the recent positive contacts made with Sarajevo, Belgrade and Zagreb.